Recently, I was associated with the launch of India’s first white-labeled ATM (Indicash)… these are ATMs that do not carry any bank branding and are owned/operated by non-banking companies. One of the questions that came up from several people was, does India need more ATMs? Shouldn’t the country be leap-frogging towards e-payments and m-payments? Aren’t ATMs / cash the legacy “technology” in payments and transaction processing?

I can use a lot of benchmarks to show how India lags all major developed economies and even several emerging economies when it comes to banking and ATM penetration. Even countries where many people carry no cash in their wallets have more ATMs than India does. But let me illustrate my point (and the serious problem we face) through a simple example.

One of my several monthly cash expenses is towards purchasing milk. The vendor delivers 2-litres of packaged milk every morning and I pay him about Rs 2000 every month. I estimate that he has at least 100 other similar deliveries in my society complex. Therefore, he collects over Rs 200,000 monthly or nearly Rs 25 Lakhs (2.5 million) annually. However, his margin is probably only about 3-4%, i.e. Rs 100,000 p.a.

Imagine if all the society residents decided to pay him using m-payment or cheque or credit card — any transaction mechanism other than cash. His collection would now get into a bank account and therefore, “accountable”. He will have to figure out what his tax liabilities are. Maybe he will need a Chartered Accountant to track his business income and prepare his returns. It is likely that he will eventually have no income tax liabilities but does he want to take a chance? It is the paper-work, the fear of extra hassles and possible bribe demands that makes him prefer cash any day.

Now take your grocery vendor. And your fruit and vegetable vendor. And many other local service providers. Every month, you make thousands in cash payments because the recipients will not have it any other way. In turn, they spend on housing, food and transport only in cash.

I am not ruling out the importance of electronic / mobile transactions in India – it’s a huge opportunity. But as long as there is a very large black (cash) economy out there and most small businesses are vary of the bureaucracy involved in becoming “white”, we will have to make the frequent trip to the neighbourhood ATM.

Disclosure: I am associated with some companies in the payments / transaction processing business as an Advisor / Director.

About: Srinivasa Addepalli is an independent strategy consultant and visiting faculty at IIM, Ahmedabad. He was Chief Strategy Officer at Tata Communications till recently. Blogs occasionally at and tweets @addepalli